Recent Decision Highlights Importance of Performing a Complete IP Due Diligence Investigation Prior to Acquiring Patents for Licensing and Enforcement Purposes

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The doctrine of patent exhaustion provides that the first authorized sale of a patented item exhausts the patent owner's right to preclude others from making, using, or selling that item, thereby extinguishing the patent owner's right to sue for patent infringement. Companies interested in acquiring patents for the purposes of licensing or enforcement need to carefully examine the licensing history of those patents to ensure that prior licenses have not resulted in exhaustion of those patent rights against intended licensing targets. The consequences of acquiring and enforcing patents without a full investigation is illustrated by a recent court decision, Rembrandt Data Technologies, LP v. AOL, LLC,1 No. 2010-1002 (Fed. Cir. April 18, 2011). There, the Federal Circuit decided a case involving the issue of patent exhaustion for patents having a complicated ownership and licensing history and found that rights in those patents had been exhausted and could not be enforced.

Rembrandt Data Technologies owns two patents relating to modem technology. According to Rembrandt, the patents are incorporated into the V.34 protocol, a modem standard promulgated by the International Telecommunications Union. Rembrandt accused Canon and HP of infringing those patents because Canon and HP market office products containing modem chips capable of implementing the V.34 protocol. All of these modem chipsets, however, were manufactured by a third party, Conexant Systems, who claimed to have a license under the patents. Under the doctrine of patent exhaustion, if Conexant had properly licensed the patents, then Rembrandt would be unable to enforce the patents against Conexant's modem-chip customers, including Canon and HP.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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